Winding Up Petitions are the most aggressive form of litigation and Debt Recovery in the UK. The world of business, finance and offering credit can be complicated one, and a Winding Up Petition can send the shivers down the spine of Company Directors and Stakeholders who may not be in the fortunate position to pay their debts as they fall due and maybe trading insolvently.
Winding Up Petitions can have significant consequences for businesses in the United Kingdom, potentially leading to the liquidation and forced closure of the company. It can be a very daunting process for most creditors who might not understand the rules around presenting Winding Up Petitions or might not want to put their clients through the distress that this can cause, but it is something Debt Collect UK carry out every week for our clients and we can guide you easily through the procedure.
Get debt recovery advice today, please call us on 0333 800 8919 or contact us online.
What is a Winding Up Petition?
A Winding Up Petition is legal action taken by a creditor against a company that owes them a substantial debt. Winding Up Petitions are typically filed in the High or County Court in England or The Sheriff Court in Scotland. If a Scottish Company has a share capital over £120,000 then this would be required to referred to The Court of Session in Edinburgh, these types of actions are typically much more expensive for creditors as they require counsel. The Winding Up Petition is a formal request for the court to initiate the Winding Up Process of the debtor company.
The primary goal of a Winding Up Petition is to force the debtor company into liquidation ultimately leading to the sale of its assets to pay off its outstanding debts, however once a Winding Up Petition has been presented it can also put a company under sufficient pressure for them to pay a creditor the full balance of their outstanding debt, the petition is then dismissed and the company can continue to trade. Should the company be unable to pay the full amount of the petition then an advertisement must be placed in The Gazette making all creditors of the company aware of the Winding Up Petition. Then a Winding Up Order can be issued by the court and the company would then be placed into liquidation. An Official Receiver is appointed by the courts in England, Wales and Northern Ireland.
The process in Scotland is slightly different where a Provisional Liquidator is appointed after providing their consent to the court at the start of the Winding Up process.
Steps leading up to a Winding Up Petition
- Debt Arrears: Before a winding up petition can be presented, a creditor must have a valid and undisputed debt owed by the debtor client. By law creditors must allow their clients 30 days to pay an invoice before they can pursue the debt, however this can differ if there is a specific contract in place that states a debtor must pay within 90 days, which is common in the construction industry. The debt owed must exceed £750.00 before a Winding Up Petition can be presented.
- Issue a Statutory Demand: The most common way of beginning the Winding Up Process is to issue a Statutory Demand served at the debtor company’s Registered Office. A Statutory Demand is a legal document can be served under various sections of The Insolvency Act 1986. This is a formal written request for payment of the debt within 3 – 21 days depending on which section of the act the demand is served under. If the debtor fails to respond or pay within the timeframes set in the act then the expired demand can be used as evidence to present to the court that the company has failed in its ability to repay its debts as they fall due and should be wound up accordingly. You can also raise Judgment in England, Wales & Northern Ireland or a Decree or Simple Procedure Action in Scotland and issue a Winding Up Petition on the back of this. This process takes a lot more time so creditors usually opt to issue a Statutory Demand.
- Issue a Winding Up Petition: Solicitors will then prepare and send all the necessary documentation to court, and a Winding Up Petition will be issued as long as the court are happy that the correct legal process has been followed.
- Court Hearing: In England, Wales and Northern Ireland a court hearing date will be issued by the court and the debtor company will have up until the hearing date to pay otherwise the business will be placed into liquidation and an Official Receiver will be appointed by the court to deal with the company’s affairs, and sell off assets etc to repay creditors. In Scotland the process is slightly different as an Insolvency Practitioner will issue their consent to the liquidation of the company when the Winding Up Petition is being presented to court, and should the company be placed into liquidation they will automatically be appointed the liquidation of the company, rather than it being given to an Official Receiver.
Effects of a Winding Up Petition
- Freezing of company Bank Accounts: Upon presentation of the Winding Up Petition, the company’s accounts may be frozen in order to protect any monies in their accounts should the business be placed into liquidation. This can make it very difficult for the business to carry out its normal day to day operations.
- Reputational Damage: A public record of the Winding Up Petition can have a negative impact on the company’s reputation, potentially deterring new or exiting clients, suppliers, investors and harbouring the company’s ability to obtain credit or business insurance.
- Other creditors can support the Winding Up Petition: In England, Wales and Northern Ireland other creditors can support the Winding Up Petition. This is known as a “Change of Carriage”, and could escalate the situation for the debtor company dramatically. A change of carriage will obligate the debtor company to not only pay the petitioning creditor but to settle every other creditor who may decide to lodge their support before the petition can be dismissed. In Scotland only one creditor can present a Winding Up Petition against a debtor company at a time. If there are other creditors they would need to wait until the Winding Up Petition was dismissed before they can proceed with one themselves.
- Potential for the business to go into liquidation: If the business goes into liquidation it will cease to trade with potentially the loss of jobs and all assets of the business being sold off in order to pay creditors of the company a dividend from the liquidation.
Get Debts Recovered With a Winding Up Petition
Winding Up Petitions are a serious matter for any business in the UK, and they can have far-reaching consequences for the business and the directors of that business. It’s crucial for any company facing a Winding Up Petition to act swiftly, seek legal and or insolvency advice and explore all options available to them to address their financial difficulties. Avoiding the petition being issued in the first instance is the best course of action, by maintaining healthy financial practices and addressing debt issues promptly.
Debt Collect UK however know that this doesn’t always happen, and this is why we are on hand to help and assist you through this process. Need a debt recovered or a Winding Up Petition presented? Get debt recovery advice today, please call us on 0333 800 8919 or contact us online.